Edmon de Haro
There’s a saying in England: ‘Where there’s smoke, there’s fire.’” So said James Bond, played by the inimitable Sean Connery, after setting fire to a fleet of Spectre boats in the movie From Russia with Love. The outbreak of flammable Samsung Galaxy Note 7 phones suggests the reverse—where there were fires, there must have been smoke. There must have been signals ahead of that unfortunate outcome for Samsung. So what were some of these signals and the reasons behind them?
With the Galaxy S8 release expected this spring, as well as the conclusion of an investigation into what happened, Samsung is trying to put the exploding episode behind it. But it’s useful for everyone to look back at what happened, as a case study for how companies can avoid creating product disasters.
The first issue that affected the Note 7 was product design. The smartphone market has become more competitive, and in recent times we haven’t seen the types of technological breakthroughs that characterized the early period of the smartphone life cycle. Manufacturers have more recently focused on making phones bigger, thinner, faster, and brighter. This, and the desire for a longer battery life, put a lot of pressure on the design of the lithium-ion battery embedded in these phones.
Unlike Apple, which generally sells only one flagship product, Samsung sells an entire product line with several series—including A, C, E, J, S, Y, and Note. Samsung has more products to test.
According to CNET, this is why there’s little room for error: “Phones use lithium ion battery packs for their power, and it just so happens that the liquid swimming around inside most lithium ion batteries is highly flammable. If the battery short-circuits—say, by puncturing the incredibly thin sheet of plastic separating the positive and negative sides of the battery—the puncture point becomes the path of least resistance for electricity to flow. It heats up the (flammable!) liquid electrolyte at that spot. And if the liquid heats up quickly enough, the battery can explode.” Companies in general (and in this case, Samsung in particular) need to be sensitive to products’ design parameters.
The second issue: product testing. The best way to minimize the probability of problems is to subject a product to rigorous testing: alpha tests, performed in-house; beta tests, with some subset of customers; and delta tests, which assess longer-term wear and tear. (Samsung, as the Wall Street Journal has reported, tests its batteries in-house.) With the pressure on to bring to market new and improved devices, it seems likely that the amount of testing that products are being subjected to is declining. Less testing, in conjunction with more-complex design, increases the likelihood of an episode such as that suffered by Samsung.
The third aspect, perhaps unique to Samsung, is product overassortment. Unlike Apple, which generally sells only one flagship product, or more recently two, Samsung sells an entire product line with several series—including A, C, E, J, S, Y, and Note. Samsung has more products to test. An issue with even one of the products is liable to damage the company’s reputation.
Designing and testing each product in each of the lines is clearly a challenge for the company, even before it faces the marketing challenge of differentiating these series in the minds of consumers. (Of course, some of the series are country specific; for example, the C series was launched in China.) The above factors may have all contributed to the greater likelihood of the Note catching fire.
There are also marketplace factors that Samsung, and others, should pay attention to in the future. Companies launching products should be more circumspect about new pricing and promotion policies being followed by product distributors.
As the technologies underlying the products advance (producing faster chips and brighter displays), the cost of manufacturing remains high ($255, by one estimate) and the market price for phones keeps rising. Granted, Samsung is in an enviable position of being more vertically integrated than other manufacturers, and so it has managed to keep costs in line with that of the previous generation phones. But a high retail price has implications for consumers.
Five lessons of Samsung’s Galaxy Note 7 fires
1. Be sensitive to products’ design parameters. Don’t let fancy features compromise basic design elements.
2. Subject every product to rigorous testing.
3. Make sure every product in a line is high quality—all of them affect the company’s reputation.
4. Are retail prices rising or falling? Take that into account, as it will affect consumers’ attitudes and behaviors.
5. If there’s a problem, move decisively to address it.
In the past, wireless carriers including AT&T and Verizon subsidized their consumers’ phone of choice. In effect, the consumer paid only about $199 for a device. However, facing competitive and margin pressures of their own, these wireless carriers have started to end the price subsidies, and now consumers are required to pay full price (albeit, in most cases, in installments).
If consumers are paying $700 for a phone when they used to pay $200, they’re likely to be a lot more sensitive to a phone’s quality. Having the device catch fire could have longer-term consequences in this new pricing and promotion regime. It would behoove Samsung and its rival manufacturers to take into account that consumers are spending more than ever when making a smartphone purchase and therefore are expecting to have a robust device.
Samsung particularly has to consider the role of the wireless carrier. In most cases service providers also distribute devices. When a device is recalled, carriers need to work with customers to retrieve the recalled phones and provide replacements.
Several manufacturers now compete in the devices marketplace, making the carriers less dependent on any particular one, especially one having an issue with its products. Samsung needs to recognize the power of the carrier and ensure that it keeps its relationships with these players strong.
But did the exploding phones already do permanent damage? Twitter data offer some insight.
With the help of Yogesh Kansal, a current Booth MBA student, I looked at Twitter data from August 15 to September 15, pulled from the 2 percent of tweets that Twitter allows us to freely access. Let’s review the timeline of events.
How Twitter reacted to a flammable phone
While Samsung’s Galaxy Note 7 took a beating in terms of Twitter sentiment, the main Samsung brand was not too badly affected.
I began by plotting the time series in tweet volume for “Samsung” and “Galaxy Note.” Not surprisingly, we saw a spike corresponding to the recall announcement. There was also a spike corresponding to the warnings issued by the CPSC and FAA. The numbers remained somewhat elevated through the middle of the month.
Next, we looked at the overall sentiment for the “Samsung” brand in this period. The split indicates that, overall, Samsung was not too badly affected by the recall. This is also evident from the sentiment trend.
What about the Galaxy Note sub-brand? The news was less positive. Here, the overall positive sentiment shows a clear drop off over time. However, the negative sentiment peaked around August 31, when the shipment delays were announced, and then again after the FAA and CPSC warnings came out.
Consumers were clearly unhappy about the delay in the shipments. This is understandable, since the later launch would eliminate bragging rights the Note 7 owners would have vis-à-vis buyers of the iPhone 7, which was set to come out later.
Moreover, consumers were confused by the recall. Samsung could have reacted to their confusion by issuing clear instructions. In the context of a global launch, where governments may require different interventions, Samsung needed to come up with a comprehensive global response. And while there was considerable buzz around the Samsung event, it was quite small in the context of the iPhone.
It is clear that Samsung and Galaxy Note had the lowest positive sentiments, but negative sentiments were no higher than those for the other brands. So working to regain the trust of the customers could result in more-positive sentiment.
Did other brands benefit from Samsung’s travails? The answer: it appears there were no major beneficiaries of Samsung’s missteps. While there does appear to have been a slight uptick in positive sentiment for the iPhone, this could easily be attributed to Apple’s announcement of the next-generation iPhone.
The data suggest that Samsung should be able to eventually overcome the fallout from the Note 7 recall. Most of the negative sentiment focused on the specific product rather than the parent company: perhaps this is an instance in which having a product line might have contributed to the problem while at the same time limited the negative consequences of the incident.
Of course, this rebound depends critically on whether the company moves decisively to address the problems.
Special thanks to Yogesh Kansal for his help with this article.
Pradeep K. Chintagunta is Joseph T. and Bernice S. Lewis Distinguished Service Professor of Marketing at Chicago Booth.
An expert panel discusses the ethics and practicalities of personalizing pricing.
Is It Fair to Charge People Different Prices?
People’s desire for redistribution and their willingness to donate are two separate things.
To Address Inequality, Donors Prefer Taxes to Charity
Many companies underestimate consumers’ left-digit bias and should be using 99-cent price endings more than they do now.
Many Retailers Are Making a Basic Mispricing MistakeYour Privacy
We want to demonstrate our commitment to your privacy. Please review Chicago Booth's privacy notice, which provides information explaining how and why we collect particular information when you visit our website.